In response to changes and developments in the capital market, Finance Secretary Cesar Purisima deemed it necessary to take measures to protect the the investing public from fraud or loss by ensuring the proper assessment and collection of taxes on the transfer of government securities.
The Finance department has further amended Department Order 141-95, or the rules and regulations on the issuance, placement, recording, selling, servicing, redemption and payment of government securities issued by the Republic of the Philippines.
At the outset, securities held by Government Owned and Controlled Corporations (GOCCs) and Local Government Units (LGUs) may be transferred prior to maturity only with GOCCs and LGUs which maintain Securities Account in the book entry of the Bureau of Treasury (BTr). In the same manner, Tax Exempt Institutions (TEIs) may sell their government securities prior to maturity only to TWIs which maintain Securities Account in the book entry of the BTr.
The amended department order will now allow government securities to trade between various entities, regardless of their tax category/ classification in any BTr-accredited Government Securities Trading Market or GSTM. Transfers between market participants will also be allowed regardless of tax status.
It will also enable the BTr to engage, designate, or employ facilities or systems that would enhance the existing registry capabilities of the Registry of Scripless Securities (RoSS).
“The reason for the original prohibition or restriction against the transfer of government securities between and among taxable entities, TEIs, GOCCs and LGUs, is the system’s limitation to tax track transfers,” said Finance Undersecretary Carlo A. Carag. “The RoSS does not have tax-tracking capability at the moment.”
In recognition of this limitation, the BTr has partnered with various donor agencies to lay down the blueprint for treasury systems enhancement including the RoSS and the ADAPS (current systems). Any engagement shall be duly cleared by the Bureau of Internal Revenue to ensure its capability to accurately calculate and account for the appropriate taxes on relevant coupon period across tax categories.
Purisima believes that unifying the taxable and tax-exempt segment of the market by lifting the current restrictions imposed by the previous DO is expected to create traction towards the desired robust secondary government securities market.
To date, TEIs hold 21% of government securities, mostly held-to-maturity.
“By allowing TEIs to join the taxable segment of the market, we expect to have gradual increase in buy-sell transactions within and across categories. More transactions in the secondary market mean better price discovery and improved attractiveness of government paper leading to reduced borrowing cost for the government,” Purisima added.
In the meantime, the Treasury intends to engage the PDS Group, a private entity to provide the same tax-tracking infrastructure it provided in previous transactions at no cost to the government. Specifically, the group’s Corporate Action Auto Claim (CAAC) facility was integrated with a sub-registry platform that managed the multi-currency retail treasury bonds issued in 2010 and the onshore dollar bonds in 2011.
“We aim to roll out non-restricted trading environment this month assuming readiness of the market. Implementation mechanics for the transition to a non-restricted trading across tax categories shall be issued by the Treasury in order to prevent any disruption in the government securities market,” Treasurer Rosalia de Leon said.
